April 22 (Bloomberg) -- Chile’s peso posted the biggest
decline in Latin America after central bank President Rodrigo
Vergara said policy makers will probably reduce borrowing costs
further, making the currency less attractive.

The currency slid 0.6 percent to 561.14 per U.S. dollar at
11:14 a.m. in Santiago, the largest drop among major regional
currencies tracked by Bloomberg. The two-year swap rate fell
four basis points, or 0.04 percentage point, to 3.76 percent.

“The local market was short dollars, betting on a return to
545, when offshore investors started buying,” said Eugenio
Cortes, the head of foreign-exchange forwards at EuroAmerica
Corredores de Bolsa SA in Santiago. “Vergara’s declarations
aren’t new. He maintained the dovish bias, but interest-rate
expectations fell.”

Chile’s growth rate is trailing its potential as investment
weakens, Vergara said today at an event in Santiago. Further
borrowing-cost reductions are likely after an “important
slowdown” in the economy, Vergara said. The central bank
maintained its target lending rate at 4 percent this month after
back-to-back cuts of 25 basis points.

Itau Unibanco Holding SA predicts that Chile will resume
rate cuts in May and stop lowering them at 3.5 percent,
according to a research note to clients. Nomura Holdings Inc.
recommended that investors increase bets that the Colombian peso
will outperform Chile’s currency, which is trading at the
weakest level versus its Andean peer since 2009.

Chile’s economic activity expanded 1.6 percent in January,
the slowest pace in four years, before picking up to 2.9 percent
in February.